Boston Consulting Group Says Companies must Keep Focus on the Whole

Supply Chain Digest Says...   Companies might want to deploy sophisticated software such as artificial intelligence and a digital twin, but caution it can take years to develop such tools. What do you say? Click here to send us your comments   Click here to see reader feedback

The huge growth in supply chain disruptions since the start of the pandemic is well-chronicled, leading to focus still more on building resilient supply chains, a skillset already pursued by many companies over the past decade.

That focus in part stemmed from the widespread disruptions caused by the earthquake and tsunami in Japan in 2011, and also mass flooding in Thailand that same year.

The question is how to reduce the likelihood or impact of supply chain disruptions. And George Stalk and Pierre Mercier of Boston Consulting Group recently shared some ideas on how to do just that in the Harvard Business Review online, offering four strategies to consider, as follows:

1. Drastically shorten lead and response times: The authors offer a quote from Marc Bitzer, Whirlpool’s CEO, who said “The only safe supply chain is the short one — short in distance and in time.”

They also point out that mismatches of supply and demand are exacerbated by long lead times and slow response times.

They add that “Long lead times drive increased order sizes and safety stock, which disconnect supply chains from reality.” They also lead to overstocks and stockouts.

“The cost of overstocks and stockouts will exceed other costs of the supply chain such as air freight,” they say, adding that companies should “increase the speed and decrease the variability of everything [they] do.”

Companies should consider: removing steps in the supply chain; paying premiums for faster, more reliable service; and using airfreight creatively (e.g., flying to and from uncongested airports).

2. Provide each link in the supply chain with better information: Look beyond just first-level upstream and downstream visibility, the authors say. Instead, “provide all the links in the chain with real-time information on demand from end users and synchronize their responses to it.”

Sounds easier said than done.

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They add that companies might want to deploy sophisticated software such as artificial intelligence and a digital twin, but caution it can take years to develop such tools.

3. Adjust your just-in-time inventory system: The authors note the spate of supply chain disruptions has made many companies doubt the wisdom of adhering to just-in-time inventory practices.

“But doing so is a formula for aggravating supply chain volatility, shortages, and significantly increasing system inventories,” they say.

Better idea: refine your JIT approach and add inventories strategically. (See Four Steps to Creating a JIT Network Supply Chain.)

4. Resist point solutions: Finally, the authors warn executives that “different parts of your functional organizations will try to give you a piecemeal solution… only affecting an individual link in the supply chain.”

Keep the focus on the whole system, they say.

These four strategies “can provide you with a competitive edge over rivals who do less than you do in combating this problem,” the authors conclude.

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